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Netflix to Test International Streaming

By : Erik Gruenwedel | Posted: 10 Dec 2009

Netflix is planning to launch an international streaming service in 2010 offering newer release content facilitated, in part, by contracting studio license agreements on a country-by-country basis.

Speaking Dec. 8 at an investor conference in San Francisco, Barry McCarthy, CFO with the Los Gatos, Calif.-based online DVD rental pioneer, said the company’s streaming expectations in the United States have been fulfilled, thereby affording the option to expand the concept abroad.

“We are experiencing tremendous amounts of success, and, we need to because we have been spending like drunken sailors to license content,” McCarthy said. “If we spend that money and nobody shows up to use it, it would then have been a huge pothole and a big tax on the company.”

Indeed, McCarthy said the company saw 145% growth in the number of subscribers streaming at least 15 minutes in 2009 than in 2008.

Specifically, McCarthy said that outside of a streaming service in the United Kingdom, there exist no formal competitors internationally. He declined to detail the exact foreign markets for competitive reasons.

“We will test the thesis that we can license enough content on a reasonable basis for a reasonable overall investment, and market a service that’s streaming only to consumers who don’t relate at all to the Netflix brand,” McCarthy said.

Cognizant of the fact that quality and timeliness of content are pillars to the success of streaming, the CFO said content for an international operation would be acquired on a country-by-country basis.

“Just because a major studio has distribution rights in the U.S., doesn’t mean they acquired distribution rights to that same title internationally,” McCarthy said.

With the proliferation of streaming and DVD rental kiosks, studios have put licensing under a microscope, specifically the amount of money paid for content.

McCarthy said the studios were caught off guard when content licensee Starz Entertainment began repurposing major studio content to third parties such as Netflix.

“The studios didn’t expect they would be able to [do] this,” he said. “All of the [second-tier] licensing money went to [Starz’] bottom line and not to their studio partners, and that was the source of the friction.”

Indeed, McCarthy said he was confident Netflix could re-license content directly with studios should Starz be unwilling or unable to repurpose content.

“We would like to close other license deals like Starz that represent a large body of work,” he said.

Regardless, McCarthy said the international streaming business would start small and be a several-year learning experiment.

“We have at least a 50/50 shot of building a large international business,” he said. “I’m sure we will make lots of mistakes.”


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